Can a property have a negative value?

[glenn walker]

The removal of the old barn changes the potential new value of the new vacant lot. The barn is keeping the lot from its highest and best use.

 

[Tom4value]

Barring it being labeled a toxic waste dump, I can’t see it having negative value. We are now looking at it as having no value as a residential use, that is true. However, I pause when I see people here saying the value of $x for the land as vacant doesn’t…..whatever. How did you come up with that figure?

I say go back to page 1 of Appraising 101, develop an opinion of highest and best use. We know it fails the test of physically possible and economically feasible for a residential dwelling so that is out. What is legally permissible? Have you checked the zoning for legal uses? Building for living or even storage may be out but how about other uses? How about a parking lot? Occasional flooding is not that much of an issue for short term parking. How about municipal uses? Maybe the lot would have value as a public park/playground? Many communities are buying land for…NOTHING! As in providing open space.

Find sales of land used for this and subtract out the demolition costs for the value. Better yet, find sales of properties that the buyer demolished the improvements for these purposes and you have your value. I am sure you will find it is more than a dollar.

 

[WyattD]

A property can definitely have a negative value.

My question is has the property owner been properly compensated for the negative impact on their property? Or was the drainage easement in place and someone built the house anyway? Then it may be an issue and the current owner would have to deal with the seller, real estate agents, title company, developer, builder, etc.

Owner has not been compensated and purchased the home many years prior to the Court finding there is now a permanent drainage easement encumbering the property/house.

 

[WyattD]

IMO, a property can not have a negative market value if the market value is the assignment. A property can have no value, as in, nobody is willing to pay for it.

A negative value would mean the owners of the property PAY to have someone take it off their hands ( creating a negative value ), which happens in a few cases, but I doubt it applies here.

A LOSS to the owner-seller is not the same thing as a negative value of the property !!! Just as a profit to the owner might not be the market value of the property. MV depends on what a buyer is willing to pay - whether the owner took a loss on the property or not.

What are the other homes on that street or affected by the same flood drainage in the community selling for? If they sell for any $ even if very low, that is the value.

No other homes were affected.

 

[WyattD]

OP -Mathematically, when considering demolition costs of the home and the unbuildability/sellability of the lot as vacant, the resulting valuation results in a negative value if demolition costs are deducted from the nominal lot value that remains.

The mathematical $ loss to the owner is not the same thing as the market value of the property ( see above post )

If the lot has a nominal value (for example, 20k), then 20k is the market value of this property.
The fact that the owner might have lost 400k is not the same as what the property value is.
( assuming you are right that the home has to be demolished )

An owner's personal $ loss is a tax or legal issue, not a property appraisal issue, though the two can be related. Be careful with your area of expertise and do not try to pretzel-twist into a negative property value to get a county to repay a loss.

The Court has ruled this is a TAKING of a permanent drainage easement that includes the entire first floor of the house. So now the owner, through no fault of his own, has a drainage retention pond inside his house. What I believe you are saying if no one would buy the house it has a zero value but the demolition costs for a house that routinely has standing water in it should not be part of full compensation....not trying to put words in your mouth just wanting to understand.

 

[WyattD]

I recall some extremely strong opinions in both directions for past threads.

I have personally appraised properties for negative numbers, but it is quite uncommon. In this case, if demolition costs exceed the site value, it is not feasible to demolish, but clearly the improvements have negative value, as well. That factor, in itself does not create negative value, as the local government may or may not require the owner to act. If they do not, the highest and best use would effectively be to walk away from the property, which suggests that it is worthless/ $0 value. If they do require action and are unwilling to provide assistance, then it is clearly a liability/ negative value.

The question arises in this specific case of the responsibility of the local municipality, as a result of the easement. I suspect that the municipality will be forced to rectify the issue, but perhaps that is the reason why this appraisal is being done. That is where the parameters of the valuation are important - i.e. are you appraising the property based on the assumption that the municipality will not compensate for any additional damages? If so, the value may be negative, but that also depends on the maintenance responsibilities of the owner.

The municipality denied liability for several years until the Court found otherwise. They have not offered to correct the problem or demolish the house as of yet.....which as you correctly pointed out is the reason for the appraisal.

 

[J Grant]

The Court has ruled this is a TAKING of a permanent drainage easement that includes the entire first floor of the house. So now the owner, through no fault of his own, has a drainage retention pond inside his house. What I believe you are saying if no one would buy the house it has a zero value but the demolition costs for a house that routinely has standing water in it should not be part of full compensation....not trying to put words in your mouth just wanting to understand.

I am not an expert in compensation- that seems to me a legal issue rather than an appraisal issue wrt how much the municipality might have to pay.- (jmo).

It sounds like a mess,-

The Market value of the property is a different issue, though the two are interrelated. If the MV for the property without this problem would have been 500k , but due to this probme, it does not pay to fix and HBU is raze for a land value of 50k- then the monetory loss of value is 450k , but the owner might be able to recover more than that for moving costs, pain and suffering whatever -I have no idea what else is at stake - seems that part would be addressed by the lawyer or judge.?

You might be on the right track with your calculations - perhaps consult with an appraiser who does this kind of work.

 

[Mark K]

The municipality denied liability for several years until the Court found otherwise. They have not offered to correct the problem or demolish the house as of yet.....which as you correctly pointed out is the reason for the appraisal.

They will be paid just compensation per the US Constitution.

Just comp is generally the value before - the value after. If the entire footprint of the house is now a drainage easement, the value after is likely $0, a total take. The owner should be compensated for the approximate value of the property when it was unaffected by the flooding. There are court cases that speak to this exact issue. As far as any demo cost...that will be on the condemning authority after they pay for the dwelling. The cost of demo should not be an issue for the owner or for this particular situation.

Some court will order an appraisal or two, average them, maybe, and require the municipality to compensate the owner.

I've done a lot of R/W work involving easements and total takes and continue to work for the local courts. It might take a while, but the owner will be compensated for the entire property.

Not rocket science, not a negative value.

 

[Zoe]

I have an appraisal assignment of a three-story residential home in a central Florida community. The local municipality resurfaced and altered the grade of the street which resulted in continuous flooding of a portion of the subject property’s yard, driveway and whole first floor of the home which includes a garage, two bedrooms, bathroom and a den. This has been ongoing for several years.

Recently, a local judge ruled that the local municipality has taken a permanent drainage easement from the subject property which includes not only exterior areas of the property but also the entire first floor of the home.

Interviews of local real estate agents have confirmed that given the circumstances with repeated flooding and a permanent drainage easement encumbering part of the property and the entire first floor of the home, the home is not marketable. In addition, there is no way for the homeowner to correct the problem based on detailed engineering analysis.

A diagram of the area of the home layout is shown below with the drainage easement indicated with blue crosshatch lines. It is not possible to assemble the lot with any adjoining owner and, as a result, the drainage easement creates a u-shaped unbuildable lot.

View attachment 107885

Mathematically, when considering demolition costs of the home and the unbuildability/sellability of the lot as vacant, the resulting valuation results in a negative value if demolition costs are deducted from the nominal lot value that remains.

Is it possible to have a negative value? I know this has been discussed on this forum and other places but wanted to get the groups opinion.

Sorry, I never read your OP. The value definition is critical and effective date of valuation. It is not possible to have an "as is" negative value with "market value" definition of value. If the value becomes negative with "market value" definition of value, the market value opinion becomes "NIL".

 

[Zoe]

I have an appraisal assignment of a three-story residential home in a central Florida community. The local municipality resurfaced and altered the grade of the street which resulted in continuous flooding of a portion of the subject property’s yard, driveway and whole first floor of the home which includes a garage, two bedrooms, bathroom and a den. This has been ongoing for several years.

Recently, a local judge ruled that the local municipality has taken a permanent drainage easement from the subject property which includes not only exterior areas of the property but also the entire first floor of the home.

Interviews of local real estate agents have confirmed that given the circumstances with repeated flooding and a permanent drainage easement encumbering part of the property and the entire first floor of the home, the home is not marketable. In addition, there is no way for the homeowner to correct the problem based on detailed engineering analysis.

A diagram of the area of the home layout is shown below with the drainage easement indicated with blue crosshatch lines. It is not possible to assemble the lot with any adjoining owner and, as a result, the drainage easement creates a u-shaped unbuildable lot.

View attachment 107885

Mathematically, when considering demolition costs of the home and the unbuildability/sellability of the lot as vacant, the resulting valuation results in a negative value if demolition costs are deducted from the nominal lot value that remains.

Is it possible to have a negative value? I know this has been discussed on this forum and other places but wanted to get the groups opinion.

With some possibility , the owner may have a case with the municipality on the public works easement. As an appraiser, you could do that in negotiation with the owner. That's fine. You can't put a negative value with "market value" definition. In this case, you would be arguing harm to the owner from the municipality.

You would use another value definition than "market value" in your opinion of loss to the owner.

Kinda like when condemnation occurs and loss occurs to owner from condemnation.

In essence you are valuing the property loss in market value from the taking of the easement.

My property wasn't flooding this bad before. Now it is.

My client has lost this much value in their property.